Raymond James assumes coverage on Broadcom stock with Outperform rating

Investing.com - Raymond James has assumed coverage on Broadcom Limited (NASDAQ:AVGO) with an Outperform rating and a price target of $420.00.

The firm cited Broadcom’s position as a share gainer in the AI sector, providing operators with customized alternatives to general purpose processors. Raymond James expects continued upward estimate revisions to support its positive rating on the stock.

Broadcom generated $51.6 billion in revenue and over $31 billion in adjusted EBITDA for fiscal year 2024, reflecting a non-GAAP gross margin of 76.5%. The company’s Google TPU contribution was estimated at approximately $8 billion to sales, while Meta’s MTIA was around $475 million.

The technology company operates through two segments: Semiconductor Solutions, which represents about 60% of sales, and Infrastructure Software, accounting for approximately 40%. Broadcom invested $5.8 billion in R&D during fiscal year 2024, representing 11% of its annual revenue.

Raymond James set its $420 price target based on 30 times its FY27 estimated earnings per share, noting that while non-AI semiconductors and software restrain overall growth, the firm expects improvement in non-AI semiconductors and believes the margin and cash generation from software is not fully appreciated by the market.

In other recent news, Broadcom has unveiled its Brocade X8 Directors and Brocade G820 56-port switch, marking the industry’s first 128G Fibre Channel platforms designed for AI applications. These platforms feature advanced security measures, including quantum-resistant 256-bit encryption and post-quantum cryptography algorithms. Additionally, Broadcom’s new Gen 8 Fibre Channel portfolio incorporates embedded SAN AI technology for automated infrastructure management. Meanwhile, Jefferies has raised its price target for Broadcom to $480, citing growth in the company’s AI ASIC business as a key driver. Mizuho has also increased its price target to $435, highlighting new AI customer developments with Anthropic, expected to generate significant revenue. Furthermore, Evercore ISI raised its price target to $403 following Broadcom’s deal with OpenAI to deploy custom AI accelerators, which could positively impact future earnings estimates. In another development, Microsoft plans to leverage OpenAI’s chip designs to enhance its semiconductor efforts, according to CEO Satya Nadella. These developments reflect ongoing advancements and strategic partnerships in the tech industry.

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